Vancouver-based Lululemon Athletica Inc. reported a decline in quarterly profit as revenue growth remained modest, reflecting a challenging North American environment alongside stronger international performance.
The company announced that net income for the fourth quarter ended February 1, 2026, totaled approximately $586.9 million, down from $748.4 million a year earlier. Diluted earnings per share fell to $5.01 from $6.14 in the prior year period. Revenue reached $3.6 billion, representing an increase of about one per cent compared to the same quarter last year.
However, the year-over-year comparison was impacted by the absence of a 53rd week that was included in the prior fiscal year. On a comparable basis, excluding that extra week, revenue growth was closer to six per cent.
Despite the modest headline growth, the latest Lululemon earnings exceeded analyst expectations, highlighting continued resilience in certain segments of the business even as profitability came under pressure.
Diverging Regional Performance Shapes Results
The latest results underscore what management described as a “tale of two markets,” with strong international growth offsetting continued softness in North America.
International revenue increased 17 per cent in the fourth quarter, with Mainland China emerging as a standout market, posting growth of 28 per cent. By contrast, revenue in the Americas declined four per cent, while comparable sales in the region slipped by one per cent.
This divergence reflects broader shifts in consumer demand and competitive dynamics. North America, which has historically been Lululemon’s core market, is experiencing slower traffic and increased promotional activity, while international markets continue to offer expansion opportunities and higher growth potential.
Margin Pressure Weighs on Profitability
While revenue held steady, profitability was impacted by several factors, including rising costs and external economic pressures.
Gross margin declined by 550 basis points to 54.9 per cent, while operating margin dropped 660 basis points to 22.3 per cent. The company pointed to higher costs of goods sold, which rose nearly 15 per cent, as well as the impact of U.S. import tariffs.
Inventory levels also increased significantly, rising 18 per cent to $1.7 billion. The buildup reflects both expansion efforts and softer demand in certain regions, contributing to increased markdown activity and margin compression.
These dynamics highlight the challenges facing premium apparel brands as they balance growth, pricing power, and cost pressures in a shifting retail environment.
Digital Growth Continues to Drive Performance
One of the more positive elements in the latest Lululemon earnings was the continued strength of its digital business.
Digital revenue grew nine per cent in the quarter, reaching approximately $1.9 billion. Online sales now account for nearly 52 per cent of total revenue, reflecting a sustained shift in consumer shopping behaviour toward e-commerce.
Management indicated that digital channels are helping offset the higher operational costs associated with physical stores. At the same time, the company is leveraging digital platforms to support product launches, including its new “ShowZero” technology, which is being promoted through digital-first campaigns.
The growth of e-commerce remains a critical component of Lululemon’s strategy as it navigates changing consumer expectations and seeks to drive full-price sales.
Global Expansion Strategy Targets New Markets
Looking ahead, Lululemon is focusing its expansion strategy on international markets, particularly in Asia and Europe.
The company plans to open between 40 and 45 net new company-operated stores globally in fiscal 2026, building on a network that reached 811 locations at the end of fiscal 2025. This represents an increase from 767 stores the previous year.
In addition to organic growth, Lululemon is entering several new markets through franchise and partnership models. These include Greece, Austria, Poland, Hungary, and Romania in Europe. In Asia, the company is preparing for a major entry into India through a partnership with Tata CLiQ, scheduled for the second half of 2026.
China remains a central focus, with plans to expand further into Tier 2 cities following strong recent performance. The international strategy reflects a deliberate pivot toward higher-growth regions as North American expansion slows.
North American Strategy Shifts to Optimization
In contrast to its global expansion, Lululemon is taking a more measured approach in North America.
Rather than aggressively opening new stores, the company is focusing on optimizing its existing fleet. This includes relocating to larger spaces in high-performing malls, as well as evaluating successful pop-up locations for permanent conversion.
The strategy also involves refining product assortments to better align with consumer preferences. Interim leadership has indicated a shift toward a more curated offering, with fewer logos and a greater emphasis on technical lifestyle products.
This approach is intended to improve productivity and restore full-price selling in a market that has become increasingly competitive.
Leadership Transition and Board Developments
The latest Lululemon earnings come during a period of significant leadership transition.
Calvin McDonald officially stepped down as CEO on January 31, 2026, and is currently serving as Senior Advisor through March 31. The company is now led by Interim Co-CEOs Meghan Frank, Chief Financial Officer, and André Maestrini, Chief Commercial Officer, as the search for a permanent CEO continues.
At the board level, Lululemon confirmed that Chip Bergh, former president and CEO of Levi Strauss & Co., officially joined the board on March 17, 2026. His appointment adds significant global retail experience at a time when the company is navigating both operational and strategic shifts.
Activist Pressure Adds Strategic Complexity
Founder Chip Wilson has intensified his criticism of the company’s direction, arguing that Lululemon has strayed from its core identity.
He has called for the addition of new board members with stronger brand and product experience, while also criticizing what he views as an overreliance on discounting and a lack of innovation.
The company has pushed back against these claims, stating that Wilson has not been involved in the business for over a decade and that his comments are inaccurate and misleading.
This ongoing tension adds another layer of complexity to Lululemon’s strategic outlook as it navigates both operational challenges and governance debates.
Outlook Reflects Cautious Growth Expectations
Lululemon’s guidance for fiscal 2026 reflects a cautious outlook.
The company expects revenue to reach between $11.35 billion and $11.50 billion, representing growth of approximately two to four per cent. Earnings per share are projected to range from $12.10 to $12.30, below the $13.26 reported in fiscal 2025.
Management has emphasized a focus on improving full-price sales in North America while continuing to invest in international expansion and digital capabilities.
